The United Nations forecast on Wednesday that global economic growth will fall significantly to 1.9 per cent this year as a result of the food and energy crisis sparked by the war in Ukraine, the impact of the Covid-19 pandemic, persistently high inflation and the climate emergency.
Painting a gloomy and uncertain economic outlook, the UN Department of Economic and Social Affairs said the current global economic slowdown “cuts across both developed and developing countries, with many facing risks of recession in 2023.”
“A broad-based and severe slowdown of the global economy looms large amid high inflation, aggressive monetary tightening, and heightened uncertainties,” UN Secretary-General Antonio Guterres said in a foreword to the 178-page report.
The report said this year's 1.9 per cent economic growth forecast — down from an estimated 3 per cent in 2022 — is one of the lowest growth rates in recent decades. But it projects a moderate pick-up to 2.7 per cent in 2024 if inflation gradually abates and economic headwinds start to subside.
In its annual report earlier this month, the World Bank which lends money to poorer countries for development projects, cut its growth forecast nearly in half, from it previous projection of 3 per cent to just 1.7 per cent.
The International Monetary Fund, which provides loans to needy countries, projected in October that global growth would slow from 6 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 2023.
IMF Managing Director Kristalina Georgieva said at last week's World Economic Forum in Davos that 2023 will be a difficult year, but stuck by the projection and said “we don't expect a global recession.”
Shantanu Mukherjee, director of the economic analysis and policy division of the UN Department of Economic and Social Affairs, highlighted the growing income inequality in the world at a news conference launching the report.
Between 2019 and 2021, he said, average incomes for the top 10 per cent rose by 1.2 per cent while the incomes of the lowest 40 per cent fell by 0.5 per cent.
“The top 10 per cent now earns on average over 42 times what the lowest percentiles” earn, Mukherjee said.
According to the UN report, this year “growth momentum has weakened in the United States, the European Union and other developed economies, adversely affecting the rest of the world economy.”
In the United States, GDP is projected to expand by only 0.4 per cent in 2023 after estimated growth of 1.8 per cent in 2022, the UN said. And many European countries are projected to experience “a mild recession" with the war in Ukraine heading into its second year on February 14, high energy costs, and inflation and tighter financial conditions depressing household consumption and investment.
The economies in the 27-nation European Union are forecast to grow by just 0.2 per cent in 2023, down from an estimated 3.3 per cent in 2022, the UN said. And in the United Kingdom, which left the EU three years ago, GDP is projected to contract by 0.8 per cent in 2023, continuing a recession that began in the second half of 2022, it said.
With China's government abandoning its zero-Covid policy late last year and easing monetary and fiscal policies, the UN forecast that its economy, which expanded by only 3 per cent in 2022, will accelerate to 4.8 per cent this year.
“But the reopening of the economy is expected to be bumpy,” the UN said. ”Growth will likely remain well below the pre-pandemic rate of 6-6.5 per cent.”
The UN report said Japan's economy is expected to be among the better-performing among developed countries this year, with GDP forecast to increase by 1.5 per cent, slightly lower than last year's estimated growth of 1.6 per cent.
Across east Asia, the UN said economic recovery remains fragile though GDP growth in 2023 is forecast to reach 4.4 per cent, up from 3.2 per cent last year, and stronger than in other regions.
In South Asia, the UN forecast average GDP growth will slow from 5.6 per cent last year to 4.8 per cent this year as a result of high food and energy prices, “monetary tightening and fiscal vulnerabilities.”
But growth in India, which is expected to overtake China this year as the world's most populous nation, is expected to remain strong at 5.8 per cent, slightly lower than the estimated 6.4 per cent in 2022, “as higher interest rates and a global slowdown weigh on investments and exports,” the UN report said.
In Western Asia, oil-producing countries are benefiting from high prices and rising output as well as a revival in tourism, the UN said. But economies that aren't oil producers remain weak “given tightening access to international finance and severe fiscal constraints,” and average growth in the region is projected to slow from an estimated 6.4 per cent in 2022 to 3.5 per cent this year.
The UN said Africa has been hit “by multiple shocks, including weaker demand from key trading partners (especially China and Europe), a sharp increase in energy and food prices, rapidly rising borrowing costs and adverse weather events.”
One result, it said, is mounting debt-servicing burdens which have forced a growing number of African governments to seek bilateral and multilateral support.
The UN projected economic growth in Africa to slow from an estimated 4.1 per cent in 2022 to 3.8 per cent this year.
In Latin America and the Caribbean, the UN said the outlook “remains challenging,” citing labour market prospects, stubbornly high inflation and other issues. It forecast that regional growth will slow to just 1.4 per cent in 2023 from an estimated expansion of 3.8 per cent in 2022.
“The region's largest economies – Argentina, Brazil and Mexico – are expected to grow at very low rates due to tightening financial conditions, weakening exports, and domestic vulnerabilities,” the UN said.
For the world's least developed countries, the UN said growth is projected at 4.4 per cent this year, about the same as last year but significantly below the UN's target of 7 per cent by 2030.